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Appropriations bill targets IRS conduct

President Donald Trump signed into law the Consolidated Appropriations Act, 2017, P.L. 115-31, on May 5, 2017. The act funds the federal government through the rest of its fiscal year, which ends Sept. 30.

Included in the legislation is $11.2 billion in funding for the IRS. It appropriates $2.2 billion for IRS taxpayer services, of which $8.9 million is to be spent on the Tax Counseling for the Elderly Program, $12 million is earmarked for low-income taxpayer clinic grants, and $15 million for Volunteer Income Tax Assistance grants. The Taxpayer Advocate Program receives $206 million, with $5 million of that earmarked for identity theft case work.

Another $290 million is earmarked to improve customer service, identification and prevention of refund fraud and identity theft, and cybersecurity. To receive the additional money, the IRS commissioner must submit to the House and Senate appropriations committees spending plans for the use of those funds.

The act appropriates $4.9 billion for IRS tax enforcement activities, $3.6 billion for operations support, and $290 million for business systems modernization. It also forbids the Treasury Department from using any of the $3 million appropriated for development and acquisition of "automatic data processing equipment, software, and services and for repairs and renovations to buildings" to pay for IRS operations support or IRS business systems modernization.

The legislation also imposes rules on IRS conduct. It forbids the IRS from paying bonuses or from rehiring former employees without considering their conduct and tax compliance status. The IRS is also forbidden from using moneys to pay for any videos, unless the Service-Wide Video Editorial Board determines ahead of time that the video is "appropriate." Moneys cannot be spent on conferences unless the conference adheres to the "procedures, verification processes, documentation requirements, and policies issued by the Chief Financial Officer, Human Capital Office, and Agency-Wide Shared Services." These rules are a response to reports from 2013 by the Treasury Inspector General for Tax Administration (TIGTA) that the agency had been wastefully spending money on conferences and on Star Trek-themed and dance videos (TIGTA, Review of the August 2010 Small Business/Self-Employed Division's Conference in Anaheim, California, Rep't No. 2013-10-037).

The act also forbids the IRS from targeting an organization based on its "ideological beliefs"—perhaps in response to another 2013 scandal, in which the IRS used inappropriate criteria that identified for review applications for tax-exempt status from organizations based upon their names or policy positions instead of focusing on the activities of the organizations and whether they met the requirements under the law for tax-exempt status (TIGTA, Inappropriate Criteria Were Used to Identify Tax-Exempt Applications for Review, Rep't No. 2013-10-053). The legislation also prohibits the White House from ordering the IRS to determine an organization's tax-exempt status.

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The package includes final regulations, guidance on how to calculate W-2 wages, a safe-harbor rule for rental real estate businesses, and new proposed rules on the treatment of previously suspended losses.

Don’t get lost in the fog of legislative changes, developing tax issues, and newly evolving tax planning strategies. Tax Section membership will help you stay up to date and make your practice more efficient.